Tax Reform, Part 2: In the Village
Hay mas mal en el aldehuela que se sueña.
—Cervantes, ‘Don Quixote’
A significant tax reform initiative—the largest such overhaul in a quarter-century, in fact—is currently being explored by members of Congress. If you haven’t heard of it yet, don’t feel bad—it is not something to which the media have paid much attention. The fact that the media are preoccupied with less significant matters ought not dissuade you, however, from tuning in to the discussions taking place. The fight over taxes may have become hackneyed and predictable over the last half-century or so, but the truth is, the subject of taxation is one of the most important issues in human governance.
In Part 1 of this series, we told you that the players involved—House Ways and Means Chairman Dave Camp (R-MI); Senate Finance Chairman Max Baucus (D-MT); and ranking Finance Committee member Senator Orrin Hatch (R-UT)—are talking about taking a “blank slate” approach to these reforms. Unfortunately, we quickly learn of their tragicomic definition of “blank slate approach” as one in which “their colleagues [are required] to make the case for their favorite tax breaks.”
With respect to our esteemed elected officials, that is not a blank slate.
THIS is a blank slate:
Your family is one of 100 families living together in a village, in the middle of a howling wilderness, eking out a simple existence. A little bit of specialization has developed, and families trade important items with each other when they can. Still, in the grand scheme of things, you’re pretty much just a notch or two above subsistence farmers. Making matters worse, every so often, a bear mauls a farmer or mounted brigands gallop into town, trample a few crops, and carry off someone’s daughter.
You call together a village meeting and everyone agrees the situation is unacceptable. You are totally free in the village, but you’d gladly give up just a little bit of that freedom so that you could actually get something accomplished without having to spend half your time fighting bears and brigands. Everyone agrees that something more is needed.
Please, congressmen and senators, take a gander—that is what an actual blank slate looks like.
This is the classic, Enlightenment era state-of-nature/social-contract argument—the core concept that undergirded our Founders’ thinking as they laid the very foundations of this nation. And by golly, our elected officials should know it by heart. We need to get back to thinking about why we, as a people, agreed to taxation in the first place.
Tragically, both this “village” and the core understanding about it have receded so far into our history that, were one of our Founders to see us today, they would have to assume they’d fallen down a rabbit hole, passed through a looking glass, or gone round a very long bend.
Indeed, if we tried to build this village to match what we have today, we’d have to do it something like this:
“We, the villagers, recognize that we desperately need the benefits of society: some external and internal security, neutral justice and adjudication of disputes, a stable currency, and, while we’re at it—some repairs to that terrible road through the center of town.
“We further recognize that in order to accomplish this, each of us will have to relinquish a little of our freedom—in the form of property—to pay for certain services and institutions that will benefit us all. We shall call this ‘taxation’.”
So far, so good.
At this point, a town council is formed and they set about the business of deciding how this taxation will take place. They get one member from each family, put them all in a line, and number them 1, 2, 3 . . . 1, 2, 3 . . . and so on down the line. People with the number one are given a straw hat. People with the number 2 are given a coconut hat. The threes are given squirrel-fur hats.
Then the town council decrees:
“People with a coconut hat will relinquish 15 ears of corn for every hundred their family grows. Squirrel-hat people will relinquish 30 ears. Straw-hat people will not have to relinquish any corn, and will be given some of the corn of the others.
Grumbles pass through the crowd as the fundamental inequity of this arrangement sinks in. But the town council isn’t finished yet.
“Furthermore . . .
“The people on Woodchuck Street will each have to pay two extra ears of corn so that people on Pine Street can weatherize their thatched roofs.
“Some ears of corn will be given to Bob’s Rickshaw Company. Gary’s Rickshaw Service will get nothing.
“People who paint their houses blue will have their taxes reduced by one ear of corn.
“Town council members’ salaries will increase by one ear of corn per year, unless the town council gets together and decides to increase that to two or three or whatever. You will not be invited to these discussions.
“Councilmember Andy has decided that we need a park at the corner of Elm and Main, which we plan to call Councilmember Andy Park. In order to get the votes needed for this, we had to promise Councilmember Jane that we would build a bridge to nowhere, about three miles out of town.
“Oh, and when Bob’s Rickshaw Company gets so bloated and inefficient that it is on the verge of collapse, we will have to give it even more of your corn. A LOT MORE.”
At this point, the villagers are standing in shocked silence. Some have already thrown their hats to the ground in disgust. Amidst the stunned silence, a lone baby cries.
“Oh, and we almost forgot . . .
Squirrel-hat people—even though you are giving the most corn of anyone in the village, we fully intended to vilify you for not giving more. Hope you don’t mind.”
If that were ever posited as a way to start a society, no one would agree to it! They would sooner go back to farming their meager plot and fending off bears with a sharpened stick.
And yet the scenario boiled up in the cauldron of our fictional town council looks disturbingly similar to what we have now:
- Progressive taxation—treating one person’s property as more susceptible to confiscation than another’s.
- Welfare—not based on genuine need, but inefficiently given based on broad categories.
- Corporate welfare—politically connected companies getting taxpayer-funded goodies, government protection, or special treatment at the expense of others.
- Crony capitalism. Tax breaks for some but not for others. Out of control public expenditures. Earmarks. Bailouts.
- The property of one individual, cohort, or entity taken for the exclusive use of other individuals, entities, or cohorts.
- Human beings—people who started out as equals—subjected to dramatically unequal treatment.
The village is us.
Tax Reform, Part 3: No One’s Ox Needs to Get Gored